Big Publishers Hit a Rough Patch

When profits and sales soared in the first half of 2021, the heads of the major publishing companies knew they would face some difficult comparisons in 2022, and that’s largely been the case. As had been anticipated, demand for books slowed this year, and the combination of softer sales, high inflation, and ongoing supply chain issues put a serious dent in earnings at three of the big four trade publishers in the first six months of 2022. Those same factors have kept publishers’ expectations for the remainder of the year guarded.

Penguin Random House parent company Bertelsmann cited high inflation and supply chain challenges as the primary reasons earnings at the world’s largest trade publisher fell 20.7% in the first half of 2022. EBIT (earnings before interest and taxes) fell to €257 million, from €324 million in the same period last year. Revenue rose 6.2%, to €1.92 billion, but excluding the favorable impact of currency exchange, sales declined from 2021.

Bright spots in the first half of 2022 included strong backlist and audiobook sales, and PRH global CEO Markus Dohle declared, “Our ever-expanding global audio business has become a strong growth pillar of our publishing efforts.”

Looking at trends, Dohle told PRH employees, “The long-term shift to online sales has resulted in strong backlist growth and a technology- and data-driven transformation of our sales, marketing, and publicity instruments and tools. We will continue to invest in this transformation and develop new competitive advantages to maximize the positioning, visibility, and sales of both our new publications and our rich catalogs on a global scale.”

But Dohle is not expecting a quick bounce back in profits. “Worldwide, significant cost increases, from paper and production to distribution and freight, among others, won’t disappear in the foreseeable future,” he wrote. “Therefore, we all need to approach our business with a lean, efficient, and productive execution mindset while maximizing value for our authors and their works.”

Sales at HarperCollins rose 4.5% in the six months ended June 30, to $1.03 billion, but profits dropped 10.9% compared to the same period in 2021. HC operates on a fiscal year ending on June 30, and for the fiscal year profits were up 1% on a 10.4% rise in sales—results that included a $149 million contribution from the purchase of the trade division of Houghton Mifflin Harcourt.

Though he’s happy with the fiscal year results, CEO Brian Murray told PW that since early spring, the higher costs of freight and fuel have had a noticeable impact on the company’s bottom line and were major reasons for the decline in profits in the first half of calendar 2022. In the quarter ended June 30, for example, profits fell 2%, while sales were up 1%.

As a new fiscal year begins at HC, all costs—particularly the cost of four-color printing in China—remain high, Murray said, and while container ship costs have come down, they’re still much higher than they were before the pandemic. He doesn’t see any real easing of costs before the beginning of 2023 at the earliest. While gas prices in the U.S. have declined, he added, the cost of diesel fuel that truckers rely on shows no signs of dropping, and fuel costs in Europe will likely remain very high because of the war in Ukraine. He was reluctant to discussing pricing, only saying that in order to make new books successful, higher costs need to be taken into account.

Murray is pleased that despite supply chain issues last year, the majority of books “got to where they needed to be” in time for the holidays, but he noted that effort was expensive. There continue to be supply chain bottlenecks this year, particularly in China. His biggest concern about the coming holidays, however, is whether consumer spending will hold up. Book sales were strong during the pandemic, and while reading still appears to be above prepandemic levels, high inflation and more entertainment and travel options could dampen spending on books, he explained.

Revenue for Lagardère Publishing rose 7.7% in the first half of 2022 over 2021, to €1.22 billion. Earnings, however, fell 27.3%, to €81 million, which the company attributed to “inflationary pressures on production, transport, and labor costs.” The sales increase reflected a €59 million gain from the September 2021 acquisition of Workman Publishing and purchase of Paperblanks, a notebook and stationery publisher, as well as a €39 million positive impact from currency fluctuations.

In the U.S., sales at Hachette Book Group, which is owned by Lagardère, were up slightly in the first half of the year thanks to the Workman purchase; excluding Workman, sales would have fallen 1.9% compared to the first half of 2021. HBG CEO Michael Pietsch said sales of trade paperbacks and digital audio rose in the period, backlist sales remained solid, and sales to independent bookstores were strong. In addition, sales in Canada were good, and HBG’s distribution business posted a sales gain.

Profits in the period remained strong, Pietsch said, but were below “2021’s extraordinary results due to sharply rising costs in paper, manufacturing, and shipping.”

Lagardère’s forecasts for full-year results are unchanged from the beginning of 2022, calling for sales to be about flat with 2021 and profits to fall because of higher costs.

Simon & Schuster was the only publisher of the big four to report increases in sales and earnings in the first half of 2022, with sales jumping 26.2%, to $510 million, and operating income rising 64.5%, to $130 million. CEO Jonathan Karp said S&S had “defied gravity” in the first quarter when results skyrocketed, and while the profit gains were not as large in the second period, he noted that all of S&S’s divisions had double-digit revenue growth then, led by two key drivers: TikTok and Colleen Hoover books. Given the good first six months of 2022, Karp was optimistic about the rest of the year.

Note: This news piece was originally published in publishers weekly and used purely for non-profit/non-commercial purposes exclusively for Human Rights.

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